Signature Bank raises its bet on cryptocurrency

Signature Bank has signed two high-profile partnerships to push its digital asset and blockchain payments strategy forward, while the bank's CEO publicly strikes a balance on future lending to crypto companies.

Signature, a New York-based bank with $80 billion in assets, has a reputation as a crypto-friendly institution — more than 16% of its desposts are from cryptocurrency clients. This week the bank signed a deal with Boston-based Circle to hold billions of dollars in reserve deposits related to USDC, Circle's fast-growing digital dollar, as well as an agreement to use Signature's Signet blockchain payment rail.

The bank additionally signed a deal with New York-based blockchain payment company GreenBox to provide banking services for GreenBox's smart contract token business. During Signature's earnings call this week, investors asked the bank about Signet's momentum in crypto and how it's pushing further diversification to products such as loans.

Signature helped process Paycheck Protection Program loans to crypto asset firms in 2020, and its executives expressed demand for lending and additional payment products in the cryptocurrency industry.

"We want to be very safe in this space, but we want to be in this space. We know there is a need and we'll take care of those clients," said Joseph DePaolo, president and CEO of Signature Bank, during the Wednesday earnings call. The bank reported net income of $190 million for the quarter ending March 31, up from $100 million the prior year. Deposits increased to $74 billion from $63 billion the prior year.

DePaolo didn't offer a lot of detail on the crypto lending strategy, saying it would contribute to earnings later this year, and it did not have an estimate on total loan volume because Signature has not finished due diligence on custodians.

"We'll only have the best clients, we'll underwrite it to death and will have quality custodians," DePaolo said, adding it would work with companies that trade and execute transactions in bitcoin and other cryptocurrencies. "We're going to learn to crawl before we learn to walk."

Signature did not provide an executive for an interview, and did not provide current statistics for the Signet platform. The bank reported the number of clients on Signet has expanded to 740 at the end of 2020 from 630 at the end of 2019.

The investors' questioning of DePaolo comes amid the bank's long-term diversification from commercial lending in the New York area into new regions such as California and new industries such as blockchain and alternative currencies.

Signet works similar to Ripple, enabling funds to be transferred directly between companies via a blockchain without the need for additional third parties, with real-time settlement and no transaction fees. The platform requires a minimum balance of $250,000.

"We do keep a decent amount of liquidity against these deposits," DePaolo said. "It's still early on in the crypto world."

As for its new partners, Signature will ensure GreenBox's blockchain payment system can operate at all times, agnostic to business hours or unexpected closures. GreenBox's programmable token is deployed in its blockchain ledger to manage scale and settlement speed.

"The Signet platform can provide connections to the parties involved in the payment to allow them to communicate with each other," said Ben Errez, chairman and founder of GreenBox.

The company positions its token as an advanced smart contract. While smart contracts automatically execute transactions when certain legal or financial conditions are met, GreenBox is attempting to make the smart contract more flexible to make the conditions changeable. A smart contract for a perishable good, for example, may change quickly once that good is shipped or purchased. "The smart token needs to have the ability to be deleted or canceled or withdrawn remotely," Errez said.

Signature faces stiffer competition as cryptocurrency becomes more popular, though its potential addressable market is also expanding, as more firms and users adopt cryptocurrency for trading, investing, payments or other purposes.

This week, Venmo introduced support for crypto purchases, giving a potential boost to parent PayPal's cryptocurrency strategy.

Coinbase's recent Nasdaq listing also has the potential to create a wide-ranging financial services app, and Circle hired Dante Disparte, the former vice president of the Facebook-affiliated Diem Association.

Circle's USDC has beaten the Facebook-affiliated Diem stablecoin to the market by more than two years, and already has an active user base that can access banking through the Signature integration. Circle will also integrate into Signet to support near-instant transaction processing. Circle and Signature's partnership will include future integrations of new Circle products within the bank.

USDC has processed more than $500 billion in payments during the past year, and has about 12 billion coins in circulation. It also has a partnership with Visa, allowing API users to access a stablecoin payout on Visa partner wallets. Circle did not comment on the Signature partnership by deadline. In an interview earlier this month, Disparte said the mass adoption of digital currencies and blockchain use cases has built momentum for a broader product and geographic expansion.